(Nov 5): US labour productivity accelerated in the third quarter (3Q) at the fastest pace in a year, suggesting a capital spending boom is translating into greater efficiency at a time when input costs have soared.

Productivity, or non-farm business output per hour, increased at a 3.6% annualised rate after an upwardly revised 2.1% pace in the prior quarter, data from the Bureau of Labor Statistics showed on Thursday.

Unit labour costs — what businesses pay employees to produce one unit of output — fell 0.7%, the first decline since the second quarter of 2025.

Labour costs are the biggest expense for many businesses, so companies invest in new technology and equipment to allow their workers to become more efficient. Productivity growth can help firms limit price hikes for consumers and other businesses.

Companies have poured massive amounts of money into artificial intelligence (AI), software and equipment — investment that businesses anticipate will allow them to generate more output with the same amount of labor.

US economic growth accelerated in 3Q amid vibrant business investment and resilient consumer spending. Economists generally expect efficiency gains to continue this year amid the AI rush. 

After their October meeting, Federal Reserve officials described productivity growth as “strong” even as inflation remained elevated. Chairman Kevin Warsh has said technological advances should ultimately ease price pressures, while cautioning that any AI-driven productivity payoff will gradually emerge.

Another government report out on Thursday showed initial applications for unemployment benefits declined last week to match the lowest level since 1969, highlighting a stable job market.

The productivity report showed 3Q non-farm business output, which excludes the impact of government spending, increased an annualised 3.7% — the fastest pace in a year.

Hours worked rose 0.1%, while hourly compensation, unadjusted for inflation, increased an annualised 2.9%. After adjusting for inflation, worker compensation rose 1.1%.

The labour share of income, the portion of output that goes to workers in the form of compensation, was 53% in 3Q of 2026, the lowest level in data back to 1947.

Separate figures out on Thursday from Challenger, Gray & Christmas showed layoff announcements were the lowest for any October in three years.

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